Eskom reviewing impact of lower tariff increase

Johannesburg - Eskom, which generates almost all of South Africa’s electricity, is still studying the impact of a tariff increase that was about a quarter of what it requested as shrinking liquidity threatens the utility.

An award by the state energy regulator last month of a 5.2% increase from April 1 2018, compared to its application for almost 20%, “has a major impact,” the utility said in an emailed response to questions.

“Eskom is still in the process of reviewing and modeling this lower tariff determination and potential impact on the business and financial sustainability.”

The producer is the biggest recipient of state guarantees at a time when South Africa’s finances are buckling under lower tax revenue and rising debt.

READ: Eskom cash crunch concerns mounting, despite denials

Domestic demand for electricity is at the lowest in more than a decade, hurting Eskom’s revenue, even after the average annual price increase was more than double the inflation rate since 2007.

The National Energy Regulator of South Africa (Nersa) in announcing the award in December said it only allows prudent costs.

Public Enterprises Minister Lynne Brown has written to Nersa, asking it to speed up processing of requests by the utility to recoup unforeseen expenses through higher power prices, the National Treasury said in an emailed response to questions

Borrowing options

The utility said its borrowing options include issuing international bonds and drawing down existing loans from export credit agencies and development finance institutions.

It will not “at this stage” seek a cash injection from the government, Eskom said. It’s targeting the end of the month to release already delayed interim results for the period to September.

The company needs R20bn of funding by the end of its fiscal year on March 31, the Mail & Guardian newspaper reported, citing Eskom. Accessing funding in local and international markets has been difficult because of concerns over the utility’s governance, it said.

READ: Moody's downgrades embattled Eskom

Goldman Sachs in September said the utility was the biggest single risk to the South African economy and that the government needed to replace its management.

Moody’s Investors Service cut Eskom’s credit rating to a deeper junk level in November, citing poor governance, weakening liquidity and the decreasing likelihood of government support. Liquidity levels “remain sufficient,” the utility said this week.